To have or not to have a fab in India

Several weeks back, a Palo Alto-based venture capitalist specializing in semiconductors said partnering with Israel rather than with U.S. or Taiwanese companies would be a great idea.

BANGALORE, India – Several weeks back, a Palo Alto-based venture capitalist specializing in semiconductors said partnering with Israel rather than with U.S. or Taiwanese companies would be a great idea.

According to Renu Raman of Tallwood Ventures, partnering with Tower makes sense since Israel has many tech startups, fabs and a highly developed IC ecosystem. Tapping into Israel’s infrastructure would ease development of a similar ecosystem in India rather than just building a fab. “So I would start looking at partnering with Israel rather than the US or Taiwan,” Raman said. “Israel needs another market. It is a technology source and not a manufacturing place.”

Tower’s plan to build a 300-mm fab in India is the latest twist in a long and so far fruitless effort to develop an Indian chip infrastructure. The SemIndia consortium plan for establishing a Fab City in Hyderabad went nowhere. Talks with Intel failed when neither the Indian government nor the chip giant could get what they wanted out of a deal.

Next came talks between the Indian and Taiwanese governments. According to sources here, there was a plan to send an Indian delegation to Taiwan to solicit ideas for a fab joint venture in India. The Indian government promised access to it huge markets for defense, transportation and mobile phones. Talks collapsed, sources said, because New Delhi declined to specify the amount of Indian business the proposed fab would gain.

That’s a problem since one of the first things global investors want to know is the size of the potential domestic market. That figure is something government officials have yet to put it down in paper. The talks with TSMC and others in Taiwan ended there.

That was yesterday. Today, the entire landscape here seems to have shifted as the government gets serious about boosting domestic chip companies. Sachin Pilot, Union Minister of State for Communication and Technology, warned the India Semiconductor Association (ISA) recently that if India doesn’t set up a fab and electronics ecosystem within the next five years, it never will. Pilot, along with senior minister Kapil Sibal and a well-meaning team of bureaucrats, are working to get the latest initiative off the ground since the cost of entry will be out of reach five years from now.

Still, many here remain skeptical about yet another attempt to set up an Indian fab. “As an Indian, I would be proud to have a fab in India,” said one observer. “A few things have to be set in the right context. Planning to set up a fab in India is like wanting to set up a five-star hotel in the middle of a desert.”

Others are more upbeat. “It is just not the manufacturing of chips but a means to an end to realize value-added manufacturing in the country to generate intellectual property, product design companies and a complete ecosystem,” noted former ISA Chairman Rajendra Khare. “The government t has to stand firm behind this decision for the next ten years. Only then will this take off.”

A senior government official said there would likely be a mandate for large companies like Broadcom and Intel to commit to using a portion of a proposed Indian fab in exchange for preferential market access.

Total Indian demand for electronics could reach $400 billion by 2020, while domestic production would account for only about $104 billion. Current consumption of electronics is about $45 billion, with semiconductor components accounting for as much as 20 percent of the total.

So, is an Indian fab really akin to a five-star hotel in manufacturing-barren India?

“If somebody has a vision of setting up a five-star hotel in a desert and creating a whole new city around it with the idea of someone using [the five-star hotel], then the analogy fits well,” agreed UmaMahesh, CEO of product startup Indrion. This is precisely the scenario facing India today in setting up a fab, he added, but the vision is to create an entire ecosystem around the fab just as a city might bloom around a new, five-star hotel.

Moreover, wasn’t Israel built on a barren strip of land? Yes, but then it grew to become a homeland for the Jewish people that has prospered far beyond what many would have guessed.

It’s clear the Indian chip market is big and getting bigger. The $5 billion question is whether the government can finally get its act together and close the fab deal with Israel’s Tower Semiconductor.

Building a few long range missiles and launching 1-3 satellites a year by Government entities that operate with limitless budgets is very different from setting up a fab that needs to make money. SMIC and GSMC in China have never turned a profit. Chartered Semi in Singapore posted losses for 10 years before it was acquired by Global Foundries. What chance does a fab have in India, with its creaky infrastructure? @scalingforever: Lack of a fab does not have to stymie growth of design houses. There are plenty of large companies (Nvidia, Qualcomm) and startups in the US that are doing just fine despite having to work with Taiwanese foundries.

The Nuclear power plants, the long range missiles etc are technologies that don't change as rapidly as the Semiconductor manufacturing. Besides they have been in India for more than 10 years... Getting into a fab business is a whole new scenario. The record is every time they have announced something, only politicians have made a killing profiting off the land (Fabcity in Hyderabad). They have a fab at BHEL (I think it 3micron 5" wafers) in Bangalore.. They have water, power and 150 acres of eucalyptus trees... They don't have a vision. Naturally they won't set it up there. They will select another spot.. Politicians will buy the land around it and corruption will make sure no fab comes up...We will wait for the next announcement in another 6 mos.....

India should build a fab because it makes business sense. Growth of design houses has been stymied by lack of access to a fab. It is also very unlikely for a IDM to step-in a build a fab. In this scenario, the most suitable vehicle is a foundry. There is sufficient domestic market to support such a fab; it could also be a source of IC's for sub-assemblies that might be exported. I might pick 90nm/65nm as the technology since the sweet-spot for Indian market is most likely to be automotive and embededd devices.
People promising the end of the world for this fab seem to be misinformed; there already exist numerous industries that require a constant 7x24 power-supply.

If India can build Nuclear power plants, develop long range missiles and satellite launch vehicles ( and that also by the 100% govt owned and controlled R & D organizations )then off course it can build its own Fab with an able technical partner and political will ( which has already been expressed)

If I were an Indian decision maker, I would turn to China for this. Geopolitically, India and China have not seen eye to eye for decades, but that's a relic of the cold war. The Indians should do everything possible to have a friendly and privileged relationship with China, and integrate with other Asian economies.

If this takes off anytime soon it could be a disaster in the making. The world over companies are shedding fabs like britney takes off clothes and here we see some beaurarcats totally ignorant of market realities pushing some grand idea.
This country has been experiencing continuous power shortage for decades, I wonder how they would feed the Fab and when would it break even? I bet this thought didn't even cross their mind.

Although India may have many technologists and engineers with advanced degrees, their lack of experience will eventually make US-based industry realize that although India may have a lower cost (Salary)the US company would save money by returning manufacture to the USA.

Building and operating a fab requires a certain ecosystem: reliable power, clean water, a trained and educated workforce, ease of material movement in/out of the country. India is sorely lacking all of these. Even a relatively low tech industry like Solar cell manufacturing is unable to take root. As "chipmonk" said, the country should start lower in the value chain and slowly build up the infrastructure and capability needed to move up. Otherwise this will end up just like previous manufacturing initiatives: started on the whim of a half-educated politician and leading nowhere.

Regardless of facts, my dream is to see India as a manufacturing country. And, I see nobody controls the financial as well as technology market, in practical. It happens just like how USA got into recession, how Japan moved almost all of manufacturing to China, Thai, Philippines, and how India become giant in "software services". If US companies do not sell technology to India or China, they cannot see the profit. If India is like US, then it cannot provide services at cheaper rates. Its a big equation of human minds. So, I hope that also will happen soon.